FBAR: Everything You Need to Know About Filing Requirements
Tiffany Woodfield, Senior Financial Advisor, Associate Portfolio Manager, CRPC®, CIM®, TEP®
Summary of Key Points
The Bank Secrecy Act introduced FBAR reporting in 1970, and FATCA later required US persons to report non-US financial assets using Form 8938.
US-based retirement accounts, like an IRA or 401(k), aren’t foreign accounts for FBAR purposes.
Many non-US accounts, such as RRSPs, must be reported.
FBAR filing is required when combined foreign account values exceed $10,000* at any time during the year.
FBARs are filed separately through FinCEN Form 114, with an April 15 deadline and an automatic extension to October 15.
Penalties are severe: willful violations can reach 50% of account value, while non-willful penalties can be significant and are adjusted annually for inflation.
*These numbers may change as government regulations change.
Video Script
In this video, I’m going to go over the main things you need to know about FBAR filing requirements as a dual citizen or American living in Canada.
This video will provide you with a basic overview of FBAR filing requirements. But for more comprehensive information, you should refer to the IRS Website or speak with a cross-border accountant.
I’m Tiffany Woodfield, a Cross-Border Financial Advisor and the co-founder of SWAN Wealth Management. I work with US and Canadian clients every day and have found that questions about FBAR reporting come up frequently.
So let’s get into it!
First, a little bit of history for context.
Since 1970 the Bank Secrecy Act has required any US person with a foreign account to file an FBAR.
But, in 2010, FATCA, which stands for Foreign Account Tax Compliance Act, came into law. This act requires all non-US financial institutions* to report information on US persons to the IRS.
FATCA also requires US persons to report their non-US financial assets each year to the IRS using form 8938.
FATCA was reportedly to collect and store information such as total asset value and SIN Numbers. However, it is an important development in the efforts by the US to fight tax evasion by US persons holding financial assets and accounts offshore.
Now let’s talk about reporting.
Do all foreign accounts need to be reported?
No, accounts in an IRA or another retirement plan, such as a 401(k), don't need to be reported. To confirm which accounts you must file, speak to your cross-border accountant.
However, if you are a US person and have a bank account, mutual fund, brokerage account or financial interest at a financial institution outside the United States, you may need to file an FBAR.
And if the combined value of these foreign accounts is more than $10,000 at any time during the year, you likely will be required to file an FBAR.
You can see why this comes up frequently for dual citizens and Americans living in Canada.
I’ve included links in the description box below to the FBAR Reference Guide, which is an excellent resource for determining which of your accounts are considered FBARs as well as other useful references. You cross-border accountant will also be able to assist you with this.
So now that you’ve determined that you have to file an FBAR, how do you do it?
You don't file your FBAR with your annual tax return.
Instead, you file FinCEN form 114a through the Financial Crimes Enforcement Network system. There is an e-filing system that allows you to fill in a PDF and save your work as you go. Or you can fill in a form online and submit directly.
If you prefer to have your accountant or attorney file for you, they will need you to fill out a form authorizing them to file your FBARs on your behalf.
What’s the deadline for filing your FBAR?
Your annual FBAR is due by April 15th.
But you are entitled to an automatic extension until October 15th if you need more time.
Remember to keep your records for five years from the reporting date.
Now what if you’ve missed the deadline…are there any penalties?
The penalties for not filing an FBAR are no joke.
If you willfully failed to file, the civil penalty can be either 50% of the total balance of the foreign account or $100,000* whichever is greater.
A willful violation means you intentionally didn't report your accounts.
While a non-willful violation is if you didn't realize you had a tax obligation.
The penalty for a non-willful violation used to be $10,000 per year regardless of the number of accounts. However, recent court rulings have made it clear that as of 2022, the IRS is taking a per-account approach to FBAR penalties.
Which means if you had 6 accounts that you should have filed an FBAR for you might be penalized at $10,000 a penalty for six accounts, that would come to a total FBAR penalty of $60,000.
It is very important to speak to your cross-border accountant about this in more detail.
If you’re a cross-border or dual citizen, it’s important that you stay on side with the IRS and file your FBAR if required.
Tax filings and investment management can get complicated when you have money on both sides of the border, so I recommend you put together a team that includes a cross-border accountant, cross-border lawyer, and cross-border financial advisor.
If you’re planning on moving across the border or you’re an American or Greencard holder living in Canada, I recommend you schedule a call with a SWAN Wealth advisor.
The biggest and most costly mistakes happen when people don’t plan in advance.